Question
Mary, a single taxpayer, purchased 10,000 shares of x 1244 stockseveral years ago at a cost of $20 per share. In November of thecurrent year, Mary received an offer to sell the stock for $12 pershare. She has the option of either selling all of the stock now orselling half of the stock now and half of the stock in January ofnext year. Mary will receive a salary of $80,000 for the currentyear and $90,000 next year. Mary will have long-term capital gainsof $8,000 for the current year and $10,000 next year. IfMary’s goal is to minimize her AGI for the two years,determine whether she should sell all of her stock this year orhalf of her stock this year and half next year.
Explanation / Answer
The maximum amountthat a taxpayer may claim as an ordinary loss for all lossessustained on §1244 stock in a taxable year is $50,000,generally, or $100,000 if a joint return is filed. Any remainingloss is treated as a capital loss and can be carried back 2 yearsand forward 20 years : therefore it would be best for Mary to sell 1/2 stock thisyear and 1/2 next year..... because in each year she can write off$40000 dollars against her salary.....however if she takes it allthe 1st year she can only write off 50000........and the remaining, although it can be carried forward is limited to the normalcapital loss rules.....and in her case being single.......that is1500 per year........SO if she sales 1/2 each year she will havemuch lower AGI : therefore it would be best for Mary to sell 1/2 stock thisyear and 1/2 next year..... because in each year she can write off$40000 dollars against her salary.....however if she takes it allthe 1st year she can only write off 50000........and the remaining, although it can be carried forward is limited to the normalcapital loss rules.....and in her case being single.......that is1500 per year........SO if she sales 1/2 each year she will havemuch lower AGI